PRECIOUS-Gold inches lower; Fed expectations lend support

Tue Dec 11, 2012 2:39am EST

* Fed expected to announce fresh bond buying
    * Platinum group metals hover near multimonth highs
    * Coming up: Federal Open Market Committee meeting

 (Updates prices)
    By Rujun Shen
    SINGAPORE, Dec 11 (Reuters) - Gold inched lower on Tuesday
but sentiment was underpinned ahead of a U.S. Federal Reserve
meeting where policy makers are expected to announce more
stimulus measures, a move that would support gold's appeal as a
hedge against inflation.
    Many economists expect the Fed to announce monthly bond
purchases of $45 billion after its meeting on Tuesday and
Wednesday. Gold benefits from an easy monetary policy as
investors fear that rampant cash printing will damage the value
of fiat currencies, prompting them to seek safety in hard assets
such as bullion. 
    Gold has risen more than 9 percent so far this year amid
monetary easing policies by the world's central banks,
especially the Fed and European Central Bank.
    "People have realised that what the Fed has been doing is
damaging to price stability," said Dominic Schnider, an analyst
at UBS Wealth Management in Singapore, adding that recent jumps
in U.S. gold coin sales showed investors' worries about the
consequences of Fed's unconventional monetary policy.
 
    But Schnider also said he was disappointed at gold's recent
performance, as neither the dragging U.S. budget talks nor a
relatively soft dollar appeared to inspire gold buying. Bullion
posted two straight months of losses in October and
November. 
    The dollar index came off its two-week high hit last
week, while the euro steadied despite a political turmoil in
Italy.  
    Spot gold inched down 0.2 percent to $1,709.10 an
ounce by 0719 GMT, after rising to a one-week high of $1,717.20
in the previous session.
    U.S. gold dropped 0.4 percent at $1,707.80.

    GOLD ETF HOLDINGS SLIP FROM RECORD HIGH
    Holdings of gold-backed exchange-traded funds
 edged down to 76.177 million ounces on Dec. 9,
after hitting consecutive record highs since mid-November
despite stagnant prices.
    By comparison, investors in U.S. gold futures and options
slashed their net length by a quarter in the week ended Dec. 4,
data from the U.S. Commodity Futures Trading Commission showed.
 
    Both platinum and palladium hit multimonth highs in the
previous session, encouraged by strength in base metals and a
bright outlook for the Chinese economy. 
    The higher prices triggered some profit-taking selling
interest, traders said.
    "There has been some noticeable interest in physical PGM
(platinum group metals) selling," said a Tokyo-based trader,
adding that the overall trade flows will slow down towards the
end of the year.
    Spot platinum was little changed at $1,617.99, off
Monday's high of $1,625, its highest since mid-October.
    Spot palladium, which rose to a near three-month high
of $702.5 in the previous session, traded down 0.3 percent to
$694.80.
    
      Precious metals prices 0719 GMT
  Metal             Last    Change  Pct chg  YTD pct chg    Volume
  Spot Gold        1709.10   -2.49   -0.15      9.29
  Spot Silver        33.05   -0.14   -0.42     19.36
  Spot Platinum    1617.99   -0.26   -0.02     16.15
  Spot Palladium    694.80   -2.00   -0.29      6.48
  COMEX GOLD DEC2  1707.80   -6.60   -0.38      9.00        12793
  COMEX SILVER MAR3  33.16   -0.22   -0.67     18.77         3433
  Euro/Dollar       1.2951
  Dollar/Yen         82.37
  COMEX gold and silver contracts show the most active months
 
 (Editing by Himani Sarkar)